The quarter ended on a muted, uneasy note as the conflict involving Iran persisted and energy prices began to bite U.S. households. Average U.S. pump prices rose past $4 per gallon for the first time in more than three years, underscoring how the energy shock has shifted from headline risk to direct consumer impact.
Market participants spent Tuesday weighing competing developments about the war's likely path. A report in the Wall Street Journal saying President Trump was prepared to end the conflict without sealing off the Strait of Hormuz provided some relief for investors, helping to lift U.S. stock futures on the final trading day of March. At the same time, fresh security developments - including an Iranian attack on an oil tanker early Tuesday and reports that 2,500 U.S. Marines have been deployed to the region - kept volatility elevated and tempered hopes of a quick de-escalation.
Crude markets were choppy through the session, pulling back slightly before rising again. Brent crude hovered around $115 per barrel while U.S. crude traded near $104 per barrel. Equity responses were uneven: Wall Street futures opened in the green, European shares inched higher on hopes for de-escalation, but the pan-European STOXX 600 remained on pace for its sharpest monthly drop since 2020. In Asia, major indexes also closed lower, with South Korea's KOSPI logging its steepest monthly fall since 2008.
Fixed income markets saw modest relief on Monday as U.S. Treasury yields eased, though on the month they remained set for a sizable rise. Eurozone bond yields dipped as well, aided by comments from Federal Reserve Chair Jerome Powell, who said long-term inflation expectations remained "well anchored". Powell also cautioned that the Fed would "wait and see" how the conflict ultimately affects inflation, a stance that helped some recovery in Treasuries.
Official institutions signaled broader macro risks. The International Monetary Fund warned that "all roads lead to higher inflation and slower growth," a succinct summary of the dilemma facing policymakers and markets as energy-driven price pressure spreads through economies. That pressure showed up in recent data: eurozone inflation jumped to 2.5% in March from 1.9% previously, and fresh German data recorded inflation climbing to 2.8% from 2.0%.
China's high-frequency activity provided a mixed counterpoint. An official manufacturing survey indicated factory activity expanded at the fastest pace in a year this month, a reading that mirrored some resilient signals from other regions. Observers cautioned that the strength could reflect a post-Lunar New Year reboot or represent activity that either preceded or persisted despite March's spike in oil prices, given China's large energy stockpiles.
Market calendars will remain busy. In the U.S., a packed labor market week culminates with the March jobs report on Good Friday. The week begins with the February job openings report (JOLTS) and a fresh consumer confidence read from the Conference Board, which will offer insight into how households are coping with rising energy costs. Policymaker appearances are also scheduled: Fed governor Michael Barr and board member Michelle Bowman will speak, along with Chicago Fed President Austan Goolsbee and Kansas City Fed's Jeffrey Schmid.
Chart of the day
China's official survey showed factory activity grew at its fastest pace in a year this month. It remains unclear whether that reading reflects a burst of demand before March's oil price shock or activity resilient enough to run despite higher energy costs, possibly aided by substantial national energy inventories. The rebound after the Lunar New Year holiday is another possible factor behind the uptick.
Events to watch
- U.S. March consumer confidence (10:00 AM EDT)
- JOLTS job openings for February (10:00 AM EDT)
- Speeches by Fed officials: Michael Barr and Michelle Bowman; Chicago Fed's Austan Goolsbee; Kansas Fed's Jeffrey Schmid
Investors will be watching these releases closely for signals on the health of the labor market and the resilience of consumer sentiment in the face of higher energy costs. Together with central bank commentary, the data will shape expectations for policy and market direction into the second quarter.